March 2019 Quarterly Results 2 | KPMG | FIPS Quarterly Results March 2019 Overview

Financial Institutions Performance Survey FIPS March 2019 Quarterly Results 2 | KPMG | FIPS Quarterly Results March 2019 Overview

Phase Two of the Review insurance cover per depositor, per We have little to no doubt that this of the Reserve Bank Act insured bank, is USD$250,0007; and process will be worked through in the EU, deposits are protected up as part of the finer details of the On 24 June 2019, the New Zealand to €100,0008. programme; however, since such Government announced some in- schemes are normally funded by the However, the New Zealand Treasury principle decisions as part of Phase banks themselves through levies, we claims that “It would also be broadly Two of the Review of the Reserve will watch deposit rates closely to consistent with international schemes Bank Act 1989 (the Review).1 see if these costs are passed on to in terms of the share of deposits depositors through reduced savings and depositors that would be fully The headline-grabbing feature of this interest rates, and possibly also under 2,3 protected (albeit relatively low in announcement was that Cabinet had the premise of the deposits being terms of the absolute dollar value of signed off an in-principle decision to ‘safer’ due to the protection. introduce a deposit protection regime protections)”9. in New Zealand as a result of the Another aspect to consider is whether While the process is still in its fairly work from the Review. The proposed this scheme will stay limited to early stages, with the finer details limits for the deposit protection are registered banks only. The Financial of the regime to be worked out, between $30,000 and $50,000. The Services Compensation Scheme in the seeing how the deposit protection Government claims these limits will UK and the Financial Claims Scheme regime works alongside the Open ”cover 90% of individual bank deposits in Australia covers banks, building Bank Resolution will be interesting. in New Zealand, which is similar to societies, and credit unions (all with Under the Open Bank Resolution international schemes”3. It is expected the same limits), while the proposed concept10, the bank enters the Open to cover 40% of total funds in bank regime in New Zealand is limited Bank Resolution stage when the bank deposits in New Zealand3. to banks only (similar to the USA becomes ‘unstable’ or ‘distressed’. and Europe). This process, when activated, would Cabinet had signed off an in- result in some deposits being frozen One final aspect to consider will principle decision to introduce while a statutory manager takes over be whether this deposit protection a deposit protection regime in the bank, and then this frozen money scheme will soften the Reserve Bank New Zealand. would be used to resolve the bank’s of New Zealand’s (RBNZ’s) view as to issues. The non-frozen money would the level of capital increase it pursues attract a government guarantee, and under its consultation. Finance deposits would remain open to access Minister, Grant Robertson, has raised This in-principle decision follows on for this non-frozen portion. this aspect as a possibility, but was from the recommendation from the equally quick to point out that it was a International Monetary Fund in their decision for the RBNZ to decide under report issued in April 2017 where The Open Bank Resolution also the New Zealand framework11. they commented that “To enhance its already includes the concept of [Open Bank Resolution framework’s] government guarantee over non- One other, less prominent, credibility and strengthen the financial frozen funds. feature of the in-principle decision safety net, the introduction of deposit announcement was Cabinet deciding insurance would be the best option”4. that the next consultation in Phase Two of the Review will focus on whether In comparison to the limits employed The difference between this concept the RBNZ’s ‘supervisory regime is in some other large countries, the and the deposit protection regime is sufficiently strong’, including whether proposed limits in New Zealand seem that these deposit protection regimes it has the right enforcement tools, quite low. In Australia, deposits are require the bank to ‘fail’ in order for including whether current levels of protected for up to AUD$250,000 for the protection to be activated, while penalties are sufficient to ‘discourage each account holder at each bank5 the Open Bank Resolution, as the core certain behaviour’. (when the Australian Government of its purpose, steps in before the activates the scheme when a bank bank ‘fails’. The Open Bank Resolution As is being done with many other fails); in the UK, deposits are protected also already includes the concept of New Zealand regulatory regime up to £85,000 per eligible person, government guarantee over non- changes, the Government is or £170,000 for joint accounts, per frozen funds. observing how overseas countries, bank6; in the USA, the standard particularly Australia and the UK, create and implement these ideas.

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The announcement specifically The RBNZ received 164 responses Given the ‘volume of the responses’ noted Australia’s Bank Executive during the consultation period, as well received by the FMA and the RBNZ, Accountability Regime (BEAR) and as feedback through briefings with and the various other activities ongoing the UK’s Senior Managers Regime banks and other stakeholders. As a in the sector that will be consuming as two examples of frameworks to result of some of the feedback given regulatory resources (capital for banks, make the banks’ decision makers to the RBNZ as to the underlying similar conduct and culture reviews more accountable than before; as a analysis and advice underpinning for life insurers), it all went pretty result, the Government is considering the proposals, the RBNZ appointed quiet while the assessment of the adopting elements of these overseas three independent experts to review responses was carried out15. frameworks for New Zealand. the RBNZ’s capital proposals and On 24 June 2019, the FMA and associated analysis and advice. The Amongst other less prominent in- RBNZ announced that all banks three experts appointed are James principle decisions, one is to combine had committed to remove sales Cummings (senior lecturer in finance the regulatory regimes for banks incentives from frontline staff and at Macquarie University), Professor and non-bank deposit takers. While their managers16. As one of the Ross Levine (chair of banking and this outcome is unlikely to have a big most explicit expectations from the finance at the Haas School of impact for registered banks, it could FMA and RBNZ’s initial report on the Business, University of California, have a significant impact on the non- banking conduct and culture17, this Berkeley) and David Miles (Professor bank deposit-taker sector, depending area was one that banks placed a of Financial Economics at Imperial on the final details that are sorted out, great deal of attention on to ensure College London). Each expert will with some possibilities being additional this expectation was met, given it had produce a separate report that the cost and additional oversight. to be in place for performance years RBNZ intends to publicly issue, and beginning after 30 September 2019. Since we still have until early 2020 that the RBNZ will use as an “input While some banks retained sales before the final decisions are made into final decisions made in the incentives for some small groups and released, we have yet to see how capital review”14. of staff and financial metrics were much consultation with the sector, still in place in incentives for senior and the wider industry and public, will executives at most banks, these be had, if any, on these two matters. The RBNZ’s consultation on its roles were not as generally directly Either way, it looks as if a busy Capital Review closed on 17 May linked to sales staff or their direct schedule for the banks just became a 2019, wrapping up what must line management. The FMA and little busier than before. have been one of the RBNZ’s most controversial and widely discussed RBNZ have clearly stated that future What has been noticeable in the last consultations monitoring and controls will need to quarter has been the greater activity be in place around these remaining of the regulator, both in commenting financial metrics. on matters in the public domain (e.g. With an announcement to be made on Also, the announcement noted that the capital submission) and on acting the final capital changes in November the FMA and RBNZ were now moving on apparent breaches of the RBNZ 2019, and a transition period of ‘a “to monitoring the banks’ progress guidelines. A review of the banking number of years’ starting from April against the plans they’ve provided”17. sector related press releases for the 2020 before banks are required to With statements such as these, quarter has shown it to be a busy fully comply with any new rules, the while 1 April 2019 may have initially quarter across a range of issues. next few months may feel quite long felt like the end of a long process for for some of those most involved those involved, it is clear that these Capital and impacted. submissions were only the end of the After an extended consultation beginning of a new ‘norm’ of more period12, the RBNZ’s consultation Conduct and culture actively supervising regulators. on its Capital Review closed on The first day of April will have been 17 May 2019, wrapping up what must a day of relief for many across the Mortgage lending have been one of the RBNZ’s most banking sector, with the deadline of After a relatively strong December controversial and widely discussed their submissions on the Financial 2018 quarter of new mortgage lending, consultations13. Markets Authority (FMA) and RBNZs’ up 9.04% to $17.1 billion, March 2019 Bank Culture and Conduct review saw a dip in new mortgage lending, having passed on 31 March 2019. down 14.61% to $14.6 billion18.

This quarter tends to be relatively home buyer’s deposits were coming may highlight where some decisions lower than other quarters, given the from their KiwiSaver funds. Assuming (or non-decisions) were possibly not impact of the Christmas and New a 20% deposit for first home buyers unanimous, or were more borderline. Year’s period essentially shutting the and $2,509 million of new lending At the next rate set date of 26 June country down for a couple of weeks to first home buyers in the quarter, 2019, the rate was held at 1.50%. (and the slow build up again in the this assumption results in deposits However, the minutes of this meeting New Year); however, the December of $627 million being required. show that there were still risks to the 2018 quarter seemed to be especially Based on these figures, this trend economy, and while there was no rate high when compared to the previous indicates that about 37% of first home rise at this meeting, the members December quarter (up 14.22%). buyer’s deposits are coming from of the Monetary Policy Committee KiwiSaver. This amount is up from an agreed that “more support from The percentage of total new lending approximated 34% in the December monetary policy was likely to be to investors in the March 2019 quarter 2018 quarter. Given that many first necessary”21. was largely in line with the December home buyers will have deposits lower 2018 quarter, at 18.5% of new than 20% of their house price, it is mortgage lending, compared to 17.9% Customer experience probably closer to 50%, or half, of a in the previous quarter. However, KPMG released its 2019 Customer first home buyer’s deposit coming this figure remains much lower than Experience Excellence Report on from their KiwiSaver funds on average. the one from the previous quarters 4 July 201922. This report summarises Given KiwiSaver is designed to be before this, where this figure bounced the views of 2,811 New Zealand there for retirement, it does beg the between 21–25%. consumers surveyed on 130 question of whether this trend of New Zealand and international brands, ‘Other owner occupiers’ continue to many young Kiwis using KiwiSaver and ranks brands against Six Pillars of be the main source of new mortgage now for a home deposit is just pushing customer excellence: Personalisation, lending at 63.1% of total new the problem of retirement affordability Resolution, Integrity, Time and Effort, mortgage lending. However, first home down the track for future generations. Expectations and Empathy. buyers continue to slowly increase their portion of new mortgage lending, OCR up to 17.2%, compared to 16.8% in the In its first meeting ahead of the The New Zealand financial services previous quarter, 15.4% a year earlier 8 May 2019 Official Cash Rate (OCR) sector continued to be the best and 11.9% two years earlier. announcement, the newly established rated sector in New Zealand, with Monetary Policy Committee reached TSB taking out top honours in this year’s report from all brands. ‘Other owner occupiers’ continue consensus to drop the OCR from to be the main source of new 1.75% to 1.5%, after remaining flat mortgage lending at 63.1% of total at 1.75% since 10 November 2016 20 The New Zealand financial services new mortgage lending. – almost two and a half years . As part of the new Monetary Policy sector continued to be the best rated Committee regime, detailed minutes sector in New Zealand, with TSB of the discussion in the meeting taking out top honours in this year’s KiwiSaver withdrawals for first home were published as part of the OCR report from all brands. TSB also had purchases dropped slightly in the announcement. These minutes the highest overall score in Integrity March 2019 quarter compared to those gave a detailed insight into the out of all brands in the report, a strong in the December 2018 quarterly, down different considerations made by the feat for a bank in a sector under from $252 million to $235 million19. Committee where the Committee the spotlight. The overall result for However, as noted above, this trend is concluded a lower path for the OCR in the sector is even more impressive likely driven by seasonality. Looking to the near future was more appropriate. when you consider that New Zealand adjust for this seasonality, KiwiSaver is one of the few countries in withdrawals for first home purchases While the Committee was able to the global Customer Experience as a percentage of new mortgage reach consensus in reaching this Excellence survey where the financial lending to first home buyers increased view, this enhanced detail of the services sector is the strongest from 8.78% to 9.37% between the Committee’s decision making allows performing sector. prior and current quarter, indicating greater insight and transparency in that it was likely that more of first the decision made, and in the future

Others in the banking sector also This figure is quite a volatile one, Asset quality deteriorated slightly performed well, with Kiwibank in 7th with the December 2018 quarter in the quarter; however, given the and BNZ in 9th rounding out the other seeing a decrease of $214 million. extremely low impairment expense banks in the top 10 overall brands. Net interest income saw a slight levels, small dollar movements result contraction, decreasing by around in large percentage movements. Without taking away from this strong $70 million (2.65%) from the prior Impaired asset expense increased performance, banks should continue to quarter. Impaired asset expense saw a by $27 million in the current quarter, remain mindful that a good customer slight increase of $27 million; however, from $80 million to $107 million, experience does not always result this number is off the back of a drop representing a 33.42% increase. in a good customer outcome. The of $102 million in December 2018. However, impaired asset expense (as challenge for banks will be to educate Operating expenses were largely flat a proportion of average gross loans) and communicate with customers with a small decrease of $40 million continues to remain at extremely where good customer outcomes can (2.98%), while tax expense was low levels, at 0.10% of gross loans sometimes mean a ‘no’, and having slightly higher by nearly $14 million (up from 0.08% in the prior quarter). strength in pillars such as Integrity due to an increase profit. Provision levels continue to remain and Empathy will help assist in fairly low and stable with small this process. Loan growth continued on its increases in both individual and track of steady modest increases. collective provision. The increase in Kiwibank continued its strong growth Analysis of results the collective provision of 1.63% was with 2.85% growth in the quarter, We have presented our analysis of largely in line with the increase in finally overtaking TSB in the annual the results for the quarter ended gross loans of 1.48% over the quarter. percentage loan increase with 9.50%, 31 March 2019 on pages 6 to 14. The compared with TSB in second place highlights from this analysis are that with 9.11%. All banks saw reasonably net profit has bounced back up with steady growth over the quarter, with an increase of 8.91% ($120 million), the major four banks seeing between off the back of a 10.36% drop in the 1.33%–1.68% growth for the quarter. December 2018 quarter. This result has largely been driven by an increase in non-interest income of $190 million.

Movement in net profit

$MILLION 1,600

Net interest 1,400 -$40M +$27M +$14M $1,454M $1,335M income 2.65% 1,200 -$70M +$190M to $2,543 million 1,000 800

600 Net interest margin Driven by 400 Heartland 40 bps 200 Kiwibank/TSB 0 10 bps DEC 2018 NET NON- OPERATING IMPAIRED TAX MAR 2019 NPAT INTEREST INTEREST EXPENSES ASSET EXPENSE NPAT Westpac 20 bps INCOME INCOME EXPENSES

TABLE 1: Movement in interest margin

31 Mar 19 Mvmt. Mvmt. Mvmt. quarter during for the 6 for ended the months the 12 (%)25 quarter (bps) months Non-interest (bps) (bps) income

ANZ 2.20% 0 10 0

BNZ 2.20% 0 10 0

CBA 2.00% 0 0 0 Heartland Bank 4.70% 40 30 20 Driven by Kiwibank 2.00% -10 -20 -10 BNZ $83M SBS Bank 2.50% 0 -10 -10 TSB Bank 1.80% -10 -10 0 Westpac $68M The Co-operative Bank 2.30% 0 -10 0 ANZ $26M Westpac 2.10% -20 0 -10

8.91% to $1,454 million

$MILLION 1,600

1,400 -$40M +$27M +$14M $1,454M Impaired $1,335M 1,200 -$70M +$190M asset expenses 33.42% 1,000 up $27 million 800

600 Driven by 400 BNZ 200 $15M 0 TSB $7M DEC 2018 NET NON- OPERATING IMPAIRED TAX MAR 2019 NPAT INTEREST INTEREST EXPENSES ASSET EXPENSE NPAT INCOME INCOME EXPENSES ANZ $7M

Operating 29.80% expenses 2.98% up $190 million down $40 million

Driven by ANZ $83M $26M $68M BNZ $5M $26M Westpac $5M

TABLE 2: Analysis of gross loans

31 Mar 19 31 Dec 18 quarter quarter % Quarterly analysis ended ended Increase $Million $Million Loans 1.48% ANZ 132,275 130,542 1.33% BNZ 86,174 85,022 1.35% to $247,109 million CBA 90,012 88,525 1.68% Heartland Bank 3,545 3,521 0.68% Kiwibank 19,981 19,428 2.85% SBS Bank 4,007 3,963 1.11% Quarterly TSB Bank 5,821 5,685 2.40% The Co-operative Bank 2,467 2,441 1.04% Kiwibank 2.85% Westpac 82,829 81,734 1.34% Total 427,109 420,860 1.48% TSB 2.40% 31 Mar 19 31 Mar 18 quarter quarter % Annual analysis ended ended Increase CBA 1.68% $Million $Million ANZ 132,275 126,834 4.29% Year on year BNZ 86,174 80,821 6.62% CBA 90,012 84,612 6.38% Kiwibank 9.50% Heartland Bank 3,545 3,909 -9.33% Kiwibank 19,981 18,247 9.50% TSB SBS Bank 4,007 3,824 4.77% 9.11% TSB Bank 5,821 5,335 9.11% The Co-operative The Co-operative Bank 2,467 2,297 7.38% Bank 7.38% Westpac 82,829 79,933 3.62% Total 427,109 405,811 5.25%

1 NEW MORTGAGE LENDING BY BORROWER TYPE 2 NEW MORTGAGE LENDING BY PAYMENT TYPE

$MILLION % $MILLION % 20,000 26 20,000 38

16,000 24 16,000 36

12,000 22 12,000 34

8,000 20 8,000 32

4,000 18 4,000 30

0 16 0 28 MAR 17 SEP 17 MAR 18 SEP 18 MAR 19 MAR 17 SEP 17 MAR 18 SEP 18 MAR 19

FIRST HOME BUYER (LHS) BUSINESS PURPOSES (LHS) INTEREST ONLY (INCLUDING REVOLVING CREDIT) (LHS) OTHER OWNER OCCUPIER (LHS) INVESTOR LENDING (%) (RHS) PRINCIPAL AND INTEREST (LHS) INVESTOR (LHS) PROPORTION OF NEW LENDING INTEREST ONLY–INVESTOR (%) (RHS)

SOURCE: RESERVE BANK OF NEW ZEALAND STATISTICS SOURCE: RESERVE BANK OF NEW ZEALAND STATISTICS

3 MOVEMENT IN PROVISIONING $BILLION % Individually 2.5 1.25 assessed 3.86% 2.0 1.00 provisions up $12 million 1.5 0.75

1.0 0.50 Driven by CBA $11M 0.5 0.25 0.0 0.00 BNZ $4M MAR 13 MAR 14 MAR 15 MAR 16 MAR 17 MAR 18 MAR 19 ANZ -$4M COLLECTIVE PROVISION (LHS) INDIVIDUAL PROVISION (LHS) TOTAL PROVISION FOR DOUBTFUL DEBTS/ GROSS LOANS AND ADVANCES (RHS)

Collectively TABLE 3: Movement in impaired asset expense/ Average gross loans assessed 1.63% 31 Mar 19 Movement Movement provisions quarter during the for the up $27 million ended (%) quarter 12 months (bps) (bps) ANZ 0.06% 2 -13 Driven by BNZ 0.13% 7 -7 CBA 0.14% -2 -2 BNZ $7M Heartland Bank 0.45% -34 -15 Kiwibank 0.08% 1 5 SBS Bank 0.40% 2 -15 CBA $6M TSB Bank 0.36% 52 28 The Co-operative Bank 0.18% 5 6 TSB $5M Westpac 0.04% 1 -6 Average 0.10% 2 -7

4 MAJOR BANKS: PAST DUE AND GROSS IMPAIRED ASSETS VS. GROSS LOANS AND ADVANCES % % 1.0 300

0.8 240

GROSS IMPAIRED/ 0.6 180 GROSS LOANS AND ADVANCES (LHS) PAST DUE/GROSS 0.4 120 LOANS AND ADVANCES (LHS) TOTAL PROVISIONS/ 0.2 60 PAST DUE AND GROSS IMPAIRED ASSETS (RHS) 0.0 0

8 8

1 1

30 SEP

31 MAR

31 MAR 31 MAR

31 MAR 31 MAR ANZ BNZCBA KIWIBANKWESTPAC

Size & strength measures Profitability measures Entity Entity 30 Jun 17 30 Sep 17 31 Dec 17 31 Mar 18 30 Jun 18 30 Sep 18 31 Dec 18 31 Mar 19 30 Jun 17 30 Sep 17 31 Dec 17 31 Mar 18 30 Jun 18 30 Sep 18 31 Dec 18 31 Mar 19

Total assets24 ($Million) Interest margin25 (%) ANZ 164,071 158,185 160,583 159,719 164,588 161,416 164,698 164,952 ANZ 2.14 2.18 2.19 2.20 2.20 2.10 2.20 2.20 BNZ 95,324 95,315 97,742 97,065 101,678 99,991 102,536 103,758 BNZ 2.06 2.21 2.10 2.20 2.10 2.10 2.20 2.20 CBA 92,828 92,801 97,762 98,643 101,338 101,906 103,157 105,388 CBA 1.92 1.99 2.04 2.00 2.10 2.00 2.00 2.00 Heartland Bank 4,035 4,222 4,307 4,388 4,496 4,596 4,018 4,054 Heartland Bank 4.54 4.49 4.37 4.50 4.40 4.40 4.30 4.70 Kiwibank 20,616 20,449 20,381 20,498 20,715 20,935 22,040 22,514 Kiwibank 1.95 1.95 2.05 2.10 2.20 2.20 2.10 2.00 SBS Bank 4,060 4,237 4,347 4,455 4,501 4,574 4,660 4,755 SBS Bank 2.43 2.52 2.68 2.60 2.60 2.60 2.50 2.50 TSB Bank 6,958 7,072 7,278 7,416 7,454 7,527 7,733 7,819 TSB Bank 1.82 1.84 1.80 1.80 1.80 1.90 1.90 1.80 The Co-operative Bank 2,449 2,527 2,589 2,629 2,661 2,689 2,786 2,786 The Co-operative Bank 2.22 2.24 2.29 2.30 2.40 2.40 2.30 2.30 Westpac 94,215 95,666 96,041 96,216 98,438 96,656 98,537 100,180 Westpac 2.03 2.16 1.96 2.20 2.10 2.10 2.30 2.10 Total 484,555 480,474 491,031 491,030 505,868 500,290 510,164 516,204 Increase in gross loans and advances (%) Non-interest income/Total assets24 (%) ANZ 0.93 0.64 0.36 0.82 1.69 0.17 1.04 1.33 ANZ 0.45 0.72 0.82 0.62 0.64 0.76 0.46 0.52 BNZ 1.86 1.68 0.63 0.51 2.01 1.64 1.46 1.35 BNZ 0.74 0.54 0.65 0.63 0.55 0.64 0.36 0.67 CBA 1.37 0.82 1.93 0.97 1.68 1. 11 1. 76 1.68 CBA 0.61 0.64 0.64 0.56 0.62 0.63 0.71 0.78 Heartland Bank 2.64 3.78 2.81 2.48 2.69 3.12 -14.95 0.68 Heartland Bank 0.30 0.18 0.39 0.32 0.69 0.27 0.23 0.32 Kiwibank -0.08 0.21 0.96 1. 01 0.93 2.49 2.93 2.85 Kiwibank 0.66 0.58 0.69 0.99 1. 14 0.98 0.91 0.74 SBS Bank 3.45 4.53 2.07 1. 11 1.02 0.37 2.20 1. 11 SBS Bank 0.77 0.78 0.85 0.85 0.82 0.88 0.92 0.81 TSB Bank 2.97 4.16 3.21 2.95 2.66 1.88 1.88 2.40 TSB Bank 0.25 0.79 0.29 0.71 0.28 0.35 0.33 0.30 The Co-operative Bank 3.25 2.00 2.26 1.21 1.51 2.48 2.17 1.04 The Co-operative Bank 0.95 0.84 0.89 0.67 0.71 0.63 0.69 0.56 Westpac 0.69 0.20 0.64 1.79 0.89 0.67 0.68 1.34 Westpac 0.73 0.57 0.78 0.48 0.74 0.60 0.43 0.69 Average 1.18 0.89 0.90 1.04 1.58 0.93 1.16 1.48 Average 0.60 0.63 0.73 0.60 0.65 0.68 0.50 0.64 Capital adequacy (%) Impaired asset expense/Average gross loans and advances (%) ANZ23 14.20 14.80 15.10 14.40 14.80 14.40 15.20 14.60 ANZ 0.04 0.03 0.04 0.19 0.02 -0.07 0.04 0.06 BNZ 12.79 13.32 13.47 13.10 13.20 13.60 13.30 13.60 BNZ -0.01 0.21 0.02 0.20 0.14 0.03 0.06 0.13 CBA23 14.20 14.10 14.80 13.60 13.90 13.90 14.80 14.30 CBA 0.06 -0.08 0.12 0.16 0.06 0.05 0.16 0.14 Heartland Bank 13.56 13.04 14.76 14.10 14.10 13.40 13.30 13.10 Heartland Bank 0.47 0.56 0.57 0.60 0.60 0.61 0.79 0.45 Kiwibank 13.40 16.00 15.00 15.40 15.80 15.70 15.30 14.90 Kiwibank -0.13 0.25 -0.22 0.03 -0.04 0.01 0.07 0.08 SBS Bank 11.91 11.35 11.80 12.80 13.00 13.10 14.10 14.20 SBS Bank 0.30 0.32 0.45 0.55 0.40 0.40 0.38 0.40 TSB Bank 14.85 14.55 14.54 14.30 14.70 14.50 14.80 14.60 TSB Bank 0.08 0.06 0.10 0.08 -0.01 0.10 -0.16 0.36 The Co-operative Bank 16.60 16.60 16.70 16.80 16.70 17.20 17.20 1 7. 1 0 The Co-operative Bank 0.11 0.10 0.11 0.12 0.17 0.15 0.13 0.18 Westpac23 14.00 14.80 14.30 16.60 1 7. 1 0 16.60 16.90 16.50 Westpac -0.07 -0.14 0.03 0.10 -0.01 -0.14 0.03 0.04 Average 0.01 0.03 0.05 0.17 0.05 -0.02 0.08 0.10 Net profit ($Million) Operating expenses/Operating income (%) ANZ 406 505 520 444 492 530 456 473 ANZ 39.28 34.30 34.46 35.08 35.28 35.64 38.14 35.23 BNZ 276 245 275 215 250 289 253 296 BNZ 38.65 37.99 38.69 46.85 40.48 37.85 40.42 35.66 CBA 248 292 275 264 296 297 292 329 CBA 38.02 35.00 35.19 35.69 35.91 35.39 35.22 33.58 Heartland Bank 16 16 15 18 19 17 13 18 Heartland Bank 42.93 43.70 44.54 39.76 40.66 41.60 47.60 39.96 Kiwibank -32 14 28 33 39 32 30 25 Kiwibank 138.17 78.74 79.41 69.43 69.20 72.87 71.71 74.33 SBS Bank 7 6 7 7 8 8 8 6 SBS Bank 60.78 67.09 64.26 61.60 61.38 60.91 62.97 65.97 TSB Bank 11 17 10 14 14 13 13 5 TSB Bank 55.00 47.54 59.48 53.44 50.77 53.75 60.63 69.31 The Co-operative Bank 3 3 3 1 3 3 3 1 The Co-operative Bank 76.96 74.55 73.32 86.39 76.50 75.00 76.33 87.88 Westpac 255 282 268 246 305 299 266 300 Westpac 43.81 40.03 40.00 39.29 36.77 38.26 39.89 37.45 Total 1,190 1,380 1,401 1,242 1,424 1,489 1,335 1,454 Average 44.82 38.96 39.34 40.95 39.21 39.15 40.91 38.27

$MILLION 5 MAJOR BANKS: NET PROFIT 600

500

400

300

ANZ 200 BNZ

CBA 100

KIWIBANK 0 WESTPAC -100 JUN 17 SEP 17 DEC 17 MAR 18 JUN 18 SEP 18 DEC 18 MAR 19

% MAJOR BANKS: INTEREST 6 MARGIN 2.40

2.30

2.20

2.10

ANZ 2.00 BNZ

CBA 1.90

KIWIBANK 1.80 WESTPAC 1.70 JUN 17 SEP 17 DEC 17 MAR 18 JUN 18 SEP 18 DEC 18 MAR 19

MAJOR BANKS: INCREASE % 7 IN GROSS LOANS AND 3.50 ADVANCES 3.00

2.50

2.00

1.50 ANZ

BNZ 1.00

CBA 0.50 KIWIBANK 0.00 WESTPAC -0.50 JUN 17 SEP 17 DEC 17 MAR 18 JUN 18 SEP 18 DEC 18 MAR 19

MAJOR BANKS: % 8 NON-INTEREST INCOME/ 1.20 TOTAL ASSETS

1.00

0.80

0.60 ANZ

BNZ 0.40 CBA

KIWIBANK 0.20 WESTPAC 0.00 JUN 17 SEP 17 DEC 17 MAR 18 JUN 18 SEP 18 DEC 18 MAR 19

MAJOR BANKS: % 9 OPERATING EXPENSES/ 150 OPERATING INCOME

130

110

90 ANZ

BNZ 70 CBA

KIWIBANK 50 WESTPAC 30 JUN 17 SEP 17 DEC 17 MAR 18 JUN 18 SEP 18 DEC 18 MAR 19

MAJOR BANKS: IMPAIRED % 10 ASSET EXPENSE/AVERAGE 0.30 GROSS LOANS AND ADVANCES

0.20

0.10

0.00 ANZ

BNZ -0.10 CBA

KIWIBANK -0.20 WESTPAC -0.30 JUN 17 SEP 17 DEC 17 MAR 18 JUN 18 SEP 18 DEC 18 MAR 19

MAJOR BANKS: GROSS % 11 IMPAIRED VS. IMPAIRED 0.50 ASSET EXPENSE

0.40

0.30

0.20

0.10 GROSS IMPAIRED LOANS/ GROSS LOANS AND ADVANCES 0.00 IMPAIRED ASSET EXPENSE/ AVERAGE GROSS LOANS AND ADVANCES -0.10 JUN 17 SEP 17 DEC 17 MAR 18 JUN 18 SEP 18 DEC 18 MAR 19

MAJOR BANKS: INTEREST $BILLION $BILLION 12 EARNING ASSETS 6.0 500 COMPARED TO INTEREST INCOME AND EXPENSE 5.0 475

4.0 450

3.0 425

INTEREST INCOME (LHS) 2.0 400 INTEREST EXPENSE (LHS)

NET PROFIT (LHS) 1.0 375

TOTAL ASSETS (RHS) 0.0 350 MAR 15 SEP 15 MAR 16 SEP 16 MAR 17 SEP 17 MAR 18 SEP 18 MAR 19

$MILLION % 13 LVR ANALYSIS OF RESIDENTIAL MORTGAGES 2 0 ,000 96

15,000 92

10,000 88

5,000 84 NEW MORTGAGES (LHS) PROPORTION OF NEW MORTGAGES WITH LVR OF 80% OR BELOW (RHS) 0 80 SOURCE: RESERVE BANK OF NEW ZEALAND STATISTICS DEC 16 MAR 17 JUN 17 SEP 17 DEC 17 MAR 18 JUN 18 SEP 18 DEC 18 MAR 19

1 https://www.rbnz.govt.nz/news/2019/06/safer-banks-and-strengthened- 15 https://www.rbnz.govt.nz/news/2019/04/update-on-fma-rbnz-bank- bank-accountability culture-and-conduct-review 2 https://www.nzherald.co.nz/nz/news/article.cfm?c_ 16 https://www.rbnz.govt.nz/news/2019/06/banks-commit-to-removing- id=1&objectid=12243442 sales-incentives-for-frontline-staff 3 https://www.interest.co.nz/banking/100359/government-signs-principle- 17 https://www.rbnz.govt.nz/news/2018/11/fma-and-rbnz-report-on-bank- decision-introduce-deposit-protection-regime-under-phase-2 conduct-and-culture 4 https://www.rbnz.govt.nz/-/media/ReserveBank/Files/ 18 http://www.rbnz.govt.nz/statistics/c31 regulation-and-supervision/FSAP/new-zealand-FSAP-2016-FSSA. 19 https://www.kiwisaver.govt.nz/statistics/monthly/withdrawals/ pdf?la=en&revision=1aa83aee-9df6-4244-80f4-8de570a0b5b0 20 https://www.rbnz.govt.nz/news/2019/05/official-cash-rate-reduced-to-1-5- 5 https://www.fcs.gov.au/banking-faq-landing-page percent 6 https://www.fscs.org.uk/your-claim/eligibility-rules/ 21 https://www.rbnz.govt.nz/news/2019/06/official-cash-rate-unchanged-at- 7 https://www.fdic.gov/deposit/deposits/faq.html 1-5-percent 8 https://ec.europa.eu/info/business-economy-euro/banking-and-finance/ 22 https://assets.kpmg/content/dam/kpmg/nz/pdf/July/2019-nz-customer- financial-supervision-and-risk-management/managing-risks-banks-and- experience-exellence-report.pdf financial-institutions/deposit-guarantee-schemes_en 23 The capital adequacy ratio’s reported are for the overseas banking group 9 https://treasury.govt.nz/publications/resource/questions-and-answers- for quarters ended up to and including 31 December 2017. From phase-2-review-reserve-bank-act-second-round-consultation 31 March 2018, the capital adequacy ratio reported reflects the ratio of 10 https://www.rbnz.govt.nz/regulation-and-supervision/banks/open-bank- the local registered banking group in line with the information disclosed resolution in the RBNZ Dashboard. 11 https://www.nzherald.co.nz/business/news/article.cfm?c_ 24 For quarters ended 31 December 2017 and earlier, total assets excluded id=3&objectid=12243499 intangible assets. From 31 March 2018, intangible assets are no longer deducted as this information is not available in the RBNZ Dashboard. 12 https://www.rbnz.govt.nz/news/2019/04/reserve-bank-extends- submission-time-for-bank-capital-proposal 25 In line with the information disclosed in the RBNZ Dashboard, the net interest margin is disclosed to 1 decimal place from 31 March 2018 13 https://www.rbnz.govt.nz/news/2019/05/reserve-bank-announces-next- onwards. As interest earning assets is not disclosed in the RBNZ steps-in-capital-review Dashboard, average net interest margin cannot be calculated from 14 https://www.nzherald.co.nz/business/news/article.cfm?c_ 31 March 2018 onwards. id=3&objectid=12235344

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